Is it wiser to buy a home or keep renting?

Published November 3, 2023

Key Takeaways

When deciding to rent vs buy, the answer may not be as clear cut as you think.
For some people, renting may be a lot cheaper, especially when they factor in all the costs related to homeownership.
Before deciding to buy, make sure your life and job are stable for the next 5 years, factor in all the costs, and make sure you have enough money saved for additional expenses.

Before you decide to buy a home, be sure to determine whether or not it makes financial sense for you to do so at this point in your life. You cannot simply compare the average mortgage price to the average rental price and make a decision. There are other factors and costs to consider.

Here are some questions to ask yourself before you decide to purchase a home.

Is now a good time to buy?

There are many factors to consider before deciding to buy vs rent. One of the biggest is cost. Are homes in your area affordable? Has there been a lot of fluctuation in the market recently?

A couple years ago, many people were paying tens of thousands of dollars over the asking price for a home and offering to pay with all cash. Is that still happening now? Can you compete in this market given the current prices, or do you need to wait until you have saved more money?

Besides cost, consider the interest rates. Most people cannot buy a home in cash and must get a mortgage from the bank. The fee that banks charge to give you the mortgage is called interest, and it can vary quite a bit.

"An increase in just a few percentage points on an interest rate can double your monthly mortgage payment."

— Lisha Taylor, MD, MPH

Given the current economic climate, is now a good time for you to get a mortgage? Can you actually secure a decent interest rate?

Will your life be stable for at least the next 5 years?

It is well documented that once you factor in all the costs of buying a home and the fees associated with selling a home, you need to stay in a house at least 5 years to break even.

If you were to buy a house now, will you actually stay in the home for 5 years? If you are someone who has just started a new job, then perhaps you should wait a year to make sure you like the job and will stay in the area before making such a long-term commitment.

Other people love their job but anticipate a lot of life changes in the next few years. Perhaps you are also in that same situation and are planning to get married or expand your family.

"Oftentimes, the kind of homes people want when they are unmarried or childless are very different from the kind of homes they want to live in with a spouse and kids."

— Lisha Taylor, MD, MPH

Think about your life and your job over the next 5 years. Is it stable, or are you anticipating a lot of changes?

Can you afford to take on more debt?

Even if your life is stable and you love your job, you must still consider if you can afford to buy a house at this point in your life. Studies show that over 70% of medical students have student loan debt and 25% of them still have credit card debt they need to pay back.^[]^[] Considering all of the debt you have, is now a good time to take on more in the form of a mortgage?

If you are getting your student loans forgiven, it may not matter. But, if you are someone who knows you will have to pay off a large chunk of student loans yourself and still have other costs, such as relocating to a new area or childcare expenses, maybe it doesn’t make sense to get a mortgage at this time.

"Perhaps you should focus on eliminating some of your other forms of debt and put yourself in a better financial position to buy a home when you have less debt and a higher credit score."

— Lisha Taylor, MD, MPH

Do you have money for the “transaction costs” of buying a home?

Even if your life is stable and your credit score is good, you still need to make sure you have the money to purchase a home.

Although many physicians can get a “doctor’s loan” to cover most, if not all, of the down payment, there are still other transaction costs associated with buying a home that you have to consider.

Some examples of transaction costs are: the appraisal fee (to have a professional determine the actual value of the home), the processing fee (to have someone evaluate your loan application and prepare any other necessary documents), title insurance (to make sure that the home is actually in your name and ensure there are no problems when the seller transfers it to you), and escrow fees (the third party that holds the money from the buyer and the home from the seller until all of the inspections and concessions have been completed), among others.

Typically, these transaction costs amount to about 3% of the total price of the home. So, if you are buying a home for $500,000, then expect to spend an additional $15,000 in transaction costs.

Have you factored in other costs, such as homeowner’s insurance and property taxes?

Along with transaction costs of buying a home, there are other monthly or annual costs associated with homeownership.

You will need to pay for homeowner's insurance, property taxes, and you may even have to pay homeowner’s association (HOA) fees. HOA fees can range from $0 in some areas to hundreds of dollars per month in others.

The cost of homeowner's insurance (which insures your home against unforeseen damage or accidents) varies by state and is listed here. Generally speaking, states with a high risk for natural disasters, such as earthquakes, floods, tornadoes, and hurricanes, charge the most.

Unlike renting, people who own a home must also pay yearly property taxes. The amount you pay in property taxes varies by state and is listed here. It ranges from 0.29% of the home value in Hawaii to 2.47% of the home value in New Jersey, with the average being around 1.00%.

This means if you have a house that is worth $500,000, expect to pay $5,000 per year (which is $416 per month, in addition to the mortgage) in taxes.

Do you have an emergency fund for inevitable repairs?

In addition to paying a monthly mortgage, property taxes, and homeowner's insurance, there are other expenses you may have to pay for as well. The biggest of these added expenses is repairs, especially when you first move in. Perhaps you want to paint the walls, redo the kitchen, or fix the lighting.

As you continue to live in the home, your air conditioner might need fixing, the plumbing may need to be changed, or some other appliance could stop working. When you are renting, the owner of the apartment complex covers these costs. When you buy a home, you pay these costs yourself.

What this means for you

The decision to rent or buy a home is a personal one that depends on many factors. Regardless of which way you are leaning, be sure to compare renting vs the true cost of homeownership (including all the added fees). If your life is stable and you can afford it, then it may make more sense to buy a home. If your life is not stable or you can't afford all the costs of home ownership, then perhaps it makes sense to rent for now and keep saving.